Northwest Bancshares announces 2017 first-quarter earnings, quarterly dividend

Northwest Bancshares, Inc. (NasdaqGS: NWBI) announced net income for the quarter ended March 31, 2017 of $17.7 million, or $0.17 per diluted share. This represents a decrease of $238,000 compared to the same quarter last year when net income was $18.0 million or $0.18 per diluted share. The annualized returns on average shareholders’ equity and average assets for the quarter ended March 31, 2017 were 6.15% and 0.75% compared to 6.21% and 0.81% for the same quarter last year.

The Company also announced that its Board of Directors declared a quarterly cash dividend of $0.16 per share payable on May 18, 2017, to shareholders of record as of May 4, 2017. This is the 90th consecutive quarter in which the Company has paid a cash dividend. Based on the market value of the Company’s stock as of March 31, 2017, this represents an annualized dividend yield of approximately 3.8%.

In making this announcement, William J. Wagner, President and CEO, noted, “We were disappointed with the first quarter earnings compared to both the same quarter last year and the fourth quarter of 2016 given the significant improvement we made to shareholder metrics during 2016. While our net interest margin remains near historic highs at 3.75%, and most components of noninterest income continue to grow, the quarter was negatively impacted by a higher provision for loan losses and a decrease in mortgage banking income. Additionally, net interest income was negatively impacted by the fewer number of days in the quarter while operating expenses were elevated due to seasonal issues. Given our current metrics, we recognize the area most in need of improvement is efficiency, which can best be addressed by reducing the ratio of expenses to assets. This challenge will receive considerable focus throughout 2017, as we strive to improve earnings each quarter and achieve our annual target for shareholder return.”

Net interest income increased by $9.0 million, or 12.6%, to $80.6 million for the quarter ended March 31, 2017, from $71.6 million for the quarter ended March 31, 2016. This increase is due primarily to a $6.4 million, or 84.0%, decrease in interest expense on borrowed funds as a result of a the payoff of all Federal Home Loan Bank advances during the third quarter of 2016. Also contributing to the increase in net interest income was a $2.0 million, or 2.4%, increase in interest income on loans receivable due to a $438.7 million, or 6.1%, increase in average loans receivable from the prior year. The impact of these changes caused the Company’s net interest margin to increase to 3.75% for the quarter ended March 31, 2017 from 3.57% for the same quarter last year.

The provision for loan losses increased by $2.9 million, or 179.3%, to $4.6 million for the quarter ended March 31, 2017, from $1.7 million for the quarter ended March 31, 2016. This increase is due primarily to the downgrade of two commercial banking relationships requiring an additional $1.2 million of combined reserves. Additionally, reserves were increased due to the substantial growth in the indirect auto and commercial business loan portfolios as well as for the planned closure of the Company’s consumer finance subsidiary. Overall credit quality remained steady with nonaccrual loans decreasing to $73.3 million at March 31, 2017 from $74.2 million at March 31, 2016 and total loan delinquency decreased to $101.9 million, or 1.35% of total loans outstanding at March 31, 2017 from $114.0 million, or 1.56% of total loans outstanding at March 31, 2016.

Noninterest income increased by $2.1 million, or 10.6%, to $21.5 million for the quarter ended March 31, 2017, from $19.4 million for the quarter ended March 31, 2016. Contributing to this increase was an increase in service charges and fees of $1.6 million, or 16.4%, which is attributable to the growth in checking accounts resulting from both recent acquisitions and internal growth initiatives. Additionally, trust and other financial services income increased by $1.0 million, or 32.0%, due to internal and acquisition related growth. Partially offsetting these improvements was a decrease in income from bank owned life insurance of $527,000, or 33.0%, due to death benefits received during the first quarter of 2016.

Noninterest expense increased by $8.3 million, or 13.2%, to $71.6 million for the quarter ended March 31, 2017, from $63.3 million for the quarter ended March 31, 2016. This increase resulted primarily from a $4.7 million, or 14.3%, increase in compensation and employee benefits due primarily to the employees added from the recent branch acquisition that was completed in September 2016. The year-over-year increase in full-time equivalent employees was 176, or 8.2%, with 180 full-time equivalents added from the acquisition. Other year-over-year increases in noninterest expenses were also primarily attributable to the growth from this acquisition.

In an effort to improve efficiency, the Company announced its intention to close the 44 offices of its consumer finance subsidiary, Northwest Consumer Discount Company (“NCDC”), effective July 14, 2017. As part of this closure, all NCDC loans will be transferred to Northwest Bank for servicing and collections. Northwest Bank will continue to make direct consumer loans to qualified customers as well as continue to offer indirect sales finance loans through various dealers and retailers. Pre-tax expenses associated with this closure are expected to be approximately $3.0 million over the next two quarters. As disclosed in the Company’s segment reporting in its December 31, 2016 Form 10-K, NCDC contributed approximately $1.6 million of noninterest income in 2016, had a provision for loan losses of $3.7 million, noninterest expense of $11.6 million, and net income after taxes of $486,000. It is expected that net interest income will decrease over time when the approximately $40.0 million portfolio of high rate consumer discount loans roll off as the Company will no longer be originating such loans.

Also, as previously announced, the Company’s subsidiary, Northwest Bank, is scheduled to divest its three Maryland branches to Shore United Bank on May 19, 2017. Included in this divestiture is approximately $145.2 million of performing loans and $220.6 million in deposits.